I picked the brain of a family friend who made his money in commercial real estate. A couple of points he told me are very at odds with what what most talk about here. I asked and got some answers, so here's what I learned:
1) The money is made through leverage and equity, not on the float.
2) #1 applies only in places where new construction is difficult (old buildings won't lose value because new ones aren't built). Places like, NYC area, Boston, LA, SF, etc.
3) The only way to make money outside of these areas is through floating properties (rents) as the value of the building will generally be lower in the future than it is now. People want newer places to live and that has a downward pressure on rents and values of older buildings.
4) The RE market is a lot more efficient than it was when he started 40 years ago. It's nearly impossible to get a deal where the seller is selling at less than actual value.
5) Watch the RE market in an area for a while to figure out what is a deal and what isn't. Dig into the numbers.
6) Buy in places with good schools. The appreciation and rents will rise faster than other areas.
7) When starting out, buying a 4-plex on a FHA loan is the best one can hope for. Find a place you want to live and rent out the other three such that your cost is less than or equal to your current rent.
8) Real estate goes in cycles, so don't buy into any hype.
9) The Internet is screwing over retailers in most places except places where a lot of poor folks live. There's a lot of foot traffic and instant gratification to make tons of money in areas like that vs affluent neighborhoods.
10) Make full use of 1031s.
11) Use self-directed IRAs.
12) If being a landlord is not your thing, being on the hard money side gives good returns (~12%).
13) Start early, and get an accountant (he's a CPA and uses one).
14) Get an umbrella policy.
15) Invest where you live and know.
He's got $25M in outstanding loans (as the lender/broker), owns several million in real estate outright. He's done something right. So what does the MMM community think of these points?